Morrisons chief executive says consumers yet to feel recovery

WM Morrison chief executive Dalton Philips today fired a warning shot about economic optimism, warning that a third of its customers are “one pay cheque away from bankruptcy” as the supermarket group’s half-year, pre-tax profits slumped 22% to £344 million.

“Clearly, a number of leading indicators are suggesting the economy is on the up but that’s still got to filter through to consumers’ pockets,” the boss of Britain’s fourth-biggest supermarket chain said. “Inflation is still far outstripping wages.”

Philips claimed that the profits plunge was down to “deliberate choices” such as its £216 million tie-up with Ocado to launch online shopping in January. But like-for-like sales fell 1.6% in the six months to August, and the supermarket is losing out to discount chains. Philips admitted: “The economic backdrop remains difficult for the consumer.”

He is pinning recovery hopes on expanding into small stores, with convenience chain M Local growing from 12 branches in January to 100 by the year end. Half will be in London and the South-East.

“We’re taking London very seriously,” Philips said. “But the space race is over. We don’t need so many large stores across the company because customers are shopping differently, they’re holding down two jobs and want to pop into a convenience store in between, or they don’t have a car to drive to a big store.”

Philips claims his convenience stores are “unique — because 50% of the space is devoted to fresh food, and you can go in and have your fish filleted and meat cut, at the same price as in superstores.”

From next year, Morrisons is cutting its acquisition of supermarket space to half the rate of the last five years. Any spare cash, Morrisons said, “will be returned to shareholders in the most appropriate form.”

Ocado today said third-quarter sales jumped more than 16%. The online grocer added that it had been boosted by an increase in orders and basket size. Customers spent an average of £113.54, an increase of 1% from the same period a year earlier.